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Irish Economy 2014: The Bord Gáis Energy Index
fell 5% in February due to month-on-month falls in wholesale gas and electricity
prices. In February, approximately 23% of Ireland’s electricity demand was
met by wind which displaced more expensive gas powered plants and this
helped lower Irish wholesale electricity prices. In addition, UK gas stocks are
robust following a mild winter and the probability of a significant storage
overhang has decreased wholesale gas prices.

Bord Gáis Energy said that while protests in Kiev failed to have an effect on
wholesale gas prices in February, the subsequent international crisis resulted
in a short term spike in early March. Any further escalation or de-escalation of
the Ukrainian crisis is likely to influence wholesale energy prices over the
coming days and weeks. There is currently no evidence of any reduction in
Russian gas flows to Western Europe.

The Bord Gáis Energy Index currently stands at 140,
which is 7% lower than February 2013 and 40% up on December 2009.

Commenting on the Bord Gáis Energy Index for February, John Heffernan, Gas &
Power trader at Bord Gáis Energy said: “February saw a decrease in the cost
of wholesale electricity and gas. This is as a result of a number of factors,
including the unseasonably mild weather, significant volumes of electricity
produced by wind in both Ireland and the UK and very weak coal prices. Since the
beginning of March the Ukrainian crisis has had an impact and pushed wholesale
gas prices higher. This highlights Europe’s dependency on fuel imports, which
exposes the continent to price volatility and places its industries at a
competitive disadvantage.

Looking ahead in terms of oil, influential forecasters expect demand will likely
rise more than previously anticipated this year due to a pick-up in European and
US economic activity. Both the International Energy Agency and OPEC have
increased their expectation of global oil demand and interestingly, global oil
consumption in January was 1.1m barrels per day higher than the same time last
year. Ongoing geopolitical concerns, diminishing global commercial stocks and an
erosion of OPEC’s spare capacity contributed to a tight oil market in February
which nudged Brent crude prices higher in Dollar terms.”

Oil (no change)
Brent crude prices were unchanged month-on-month in euro terms, although they
rose close to US$$3 month-on-month closing at $109 dollars per barrel. However,
the euro’s gain versus the Dollar protected eurozone buyers this month.
Geopolitical risks particularly in Libya, Syria and Venezuela remain a concern
and there is now an estimated 3m barrels of oil per day remaining offline.
Conflict, rising demand and falling global commercial inventories are supporting
oil prices.

Natural Gas (-10%)
On 3rd March, Russian intervention in Crimea created an anxiety that European
gas supplies through Ukraine were threatened and this initially pushed gas
prices 10% higher. However in February, events in Ukraine were largely viewed as
a domestic matter and did not influence European gas markets. Instead, high wind
generation, uninterrupted Norwegian gas supplies, robust stocks and reduced
demand pushed wholesale gas prices lower month-on-month. Wholesale prices were
historically high entering winter 13/14 on concerns of a repeat of the extended
cold spell of winter 12/13. However above average temperatures during this
winter eroded these anxieties.

Coal (-9%)
At the end of February, the ICE Rotterdam Monthly Coal Futures fell to a 2014
low of $77.10. This is despite US miner Drummond’s ship-loading operations
remaining suspended on environmental grounds. It is expected that European
prices may fall further due to the reasonably high stock levels, a lack of
demand in Eastern Europe and falling demand as spring arrives.

Electricity (-13%)
In February, wind turbines met 23% of Irish electricity demand, the second
highest percentage on record (all-time record of 24% in December 2013). This
helped to displace gas fired generation which fed through to wholesale prices.
In addition, average ‘clean sparks’ in February fell over €7/MWh to €7/MWh
month-on-month. A key factor in this was the return of more efficient gas
powered plants that were unavailable in January due to maintenance and increased
coal-fired production.